In recent years, arbitration has become one of the most popular methods of resolving commercial disputes. The Arbitration and Conciliation Act, 1996 (“Act“) lays down the framework for arbitration proceedings in India, enabling parties to settle disputes out of court. In this blog post, we will examine the recent judgement by the Delhi High Court in Unthinkable Solutions LLP v. Ejohri Jewels Hub Pvt. Ltd1, which highlights the importance of specific reference while incorporating and enforcing an arbitration clause from another contract.
Facts of the Case
In the case at hand, a petition was filed under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator to resolve a dispute between Unthinkable Solutions LLP (the “Petitioner“) and Ejohri Jewels Hub Pvt. Ltd. (the “Respondent“). The dispute arose under a master services agreement dated August 19, 2019 (“MSA“), under which the Petitioner provided offsite work for the Respondent, including the deployment of software developers for the Respondent’s project. The MSA contained an arbitration clause that mandates arbitration in case of any disputes.
The relevant clause in the MSA, titled “Arbitration & Jurisdiction” stated that if a dispute arises between the parties concerning the agreement or its interpretation, and the parties cannot resolve the dispute amicably within 30 days, the matter shall be referred to a sole arbitrator. The clause further stipulated that the arbitration will be governed by the provisions of the Act and will take place in either New Delhi or Gurgaon, with English as the language of proceedings.
The Petitioner issued a notice to the Respondent on July 10, 2024 for initiating the arbitration process as per the arbitration clause.
Arguments
The Respondent contended that the petition to appoint the arbitrator should be dismissed as the MSA was unsigned and, therefore, not legally binding. The Respondent also argued that the Statement of Work (“SOW“), which was entered into between the parties on February 10, 2020, did not contain an arbitration clause, thus, the Petitioner cannot initiate arbitration.
The Petitioner, in reply, argued that the MSA was signed by both the parties, and that the dispute arose under the MSA, not the SOW. The Petitioner also produced evidence, including an email from September 11, 2024, which referenced both the MSA and the SOW, further demonstrating that the MSA was integral to the agreement between the parties.
Additionally, the Petitioner contended that even though the SOW did not contain an arbitration clause, the SOW was made pursuant to the MSA, and therefore, the arbitration clause in the MSA should apply to any disputes arising under the SOW.
Observations by the Court
The Court examined the legal aspects of the dispute, particularly focusing on Section 7(2) of the Act, which allows an arbitration agreement to exist in the form of a clause within a contract or as a separate agreement. The Court noted that the SOW, although a separate document, was made pursuant to and in furtherance of the MSA. Further, it was mentioned in the SOW that the same is an integral part of the MSA. As such, the arbitration clause in the MSA would automatically apply to disputes under the SOW, even if the SOW itself did not specifically contain an arbitration clause.
The Court also referred to judicial precedents, particularly the Supreme Court’s judgement in M. R Engineers and Contractors (P) Ltd. v. Som Datt Builders Ltd.2, wherein, it was held that an arbitration clause from one document could be incorporated into another contract and enforced if the contract clearly referenced the document containing the arbitration clause and indicated an intention to incorporate the arbitration clause.
The abovementioned ruling of the Supreme Court of India was later reaffirmed in NBCC (India) Limited v. Zillion Infraprojects Private Limited3, wherein the Court held that a specific reference to the arbitration clause in an agreement is necessary for it to be incorporated and enforced in a cause of action arising from another contract.
Judgement
The Court found that the SOW was made pursuant to the MSA and explicitly stated that it formed an integral part of the MSA. Since the MSA contained an arbitration clause, that clause automatically extended to disputes under the SOW. The Court, therefore, rejected the Respondent’s objections and concluded that the dispute between the parties was subject to arbitration under the MSA’s terms. Accordingly, the Court appointed a sole arbitrator in the matter.
Implications of the Judgement
This case serves as a reminder of the importance of clearly defined arbitration clauses in contracts. It also highlights that even if the arbitration clause is present in a master agreement but not in a subsequent document such as a statement of work, the arbitration clause may still be enforceable if the subsequent document is made pursuant to and is an integral part of the original agreement.
Moreover, the decision reinforces the judicial principle that disputes arising from agreements that are linked by reference to an earlier contract will be governed by the arbitration clause in the original agreement. This ensures that parties cannot easily evade arbitration by arguing that a subsequently signed document does not contain an arbitration clause.
1 ARB.P. 988/2024
2 (2009) 7 SCC 696
3 (2024) 7 SCC 174
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